A pricing offer by BT Group PLC (LSE:BT.A)'s Openreach network arm to its wholesale broadband customers, including the likes of Sky, TalkTalk and Vodafone, is being investigated amid competition concerns for other fibre network operators.
UK telecoms regulator Ofcom said today that Openreach has notified it of the new pricing arrangements for high-speed fibre broadband offers it intends to launch from April 1, 2023.
Openreach charges wholesale prices for other providers to use its fibre network to offer their own broadband services as internet service providers (ISPs).
It today offered up a new set of discounts for wholesale customers, such as Sky, TalkTalk and Vodafone, who have been putting pressure for such a move.
The ‘Equinox 2’ discounts are on the wholesale price of their gigabit-capable FTTP (fibre to the property) broadband products, which aims to keep the operator competitive and reduce prices on consumer packages.
Ofcom said it will “consider whether the notified offer raises competition concerns requiring intervention, and that it will reach a provisional view”.
Rival infrastructure suppliers like Virgin Media O2 and ‘altnets’ such as CityFibre (AIM:CFHL) have concerns that prices are too low, squeezing them out of the market.
The watchdog said it expects to publish a consultation by early February, adding that BT will have 30 days to respond.
“This latest move will impact the entire market and consumers,” said analyst Paolo Pescatore at PP Foresight.
In theory, by offering lower wholesale pricing this saving should be passed onto consumers resulting in lower fibre broadband packages, he said.
“Rivals will feel that Openreach is trying to use its market dominance by locking in providers for longer. If so this will squeeze their own margins, making it harder to rollout their own networks and compete at scale," the analyst noted
However, on Openreach’s side, Pescatore acknowledged that it needs long-term contracts to give it certainty for its investment in rolling out and maintaining the fibre broadband network.
“Ofcom now has a tough challenge of assessing the impact of these new prices and whether it will negatively impact the market and choice,” he said.
The market as it currently stands cannot support all players, said Pescatore, as there are “too many chasing too few pounds”, meaning consolidation “is inevitable”.
This is being further complicated by the cost of living crisis with all retail prices heading in the wrong direction, with analysts expecting BT to hike broadband prices by around an expected 15% in the new year.
Under BT’s customer contracts it says it can increase prices from March 31 each year by the CPI rate of inflation published in January plus 3.9%.
As analysts at UBS said in a note this month, with inflation around 11% that would make Openreach’s fibre-to-the-premises (FTTP) pricing hike around 15%.
The UBS analysts said they were “cautious” on the scope for above-inflation increases in BT’s consumer “given pressures on the UK consumer and regulatory scrutiny of mid-contract increases”.
Last April, many UK operators applied mid-contract increases of up to 9.3%.
“While the absolute increase in communications cost for consumers is modest at a few pounds per month relative to increases in other utility bills, Ofcom is undertaking a review on whether midcontract prices were sufficiently transparent,” the UBS analysts noted.